The Ministry of Defence achieved a good price when they awarded the contract for a new Defence Fixed Telecommunication System to BT in 1997, Sir John Bourn, head of the National Audit Office, told Parliament last week.

The ten year contract, let under the Private Finance Initiative (PFI), is expected to cost £612 million with a further £170 million of related expenditure within the Department.

The Department's main aims in letting this contract were to rationalise and improve the efficiency of their existing services and to ensure continued service delivery. The Department estimates that the contract will enable them to achieve savings of around £30 million a year (some 20% of their annual fixed telecommunications costs).

Although the National Audit Office found that the Department obtained the contract at a good price, it also reported that the the scope of the project may not have maximised value for money. "There are interrelationships between the Department’s various communication systems and rapidly changing technology requires fast and frequent reassessment of the most effective form of service delivery."

The NAO says that having decided to procure a new fixed telecommunications system, the Department did not assess the potential advantages and disadvantages of expanding or reducing the scope of the project.

The report also says the Department should have made better use of external advice in contract negotiations. "The Department’s interests could have been better protected if they had brought their legal team together at the outset, after a competition between firms with relevant experience, and if they had sought bids based on a set of contract terms developed with input from their legal advisors.

Sir John Bourn said:

"This project was a major procurement for the MOD in the complex field of communications where the MOD has many different requirements and technology is changing rapidly. The MOD achieved a good price on the project they went to the market for but, given that the MOD has a number of closely related communications contracts, a strategic review may have identified options for pursuing further savings from a project with a different scope."

The Private Finance Initiative: The Contract for the Defence Fixed Telecommunications System 23 March 2000.

The Full Report (767 Kb) and the Executive Summary(72 Kb) are available from the NAO web site as PDF files http://www.nao.gov.uk/pn/9900328.htm